Older people paying out as much as £75,000 a year for a room in a care home are not being told what their money is buying and are unaware they may be subsidising other residents whose fees are paid by councils, according to a report published today.

The study by the care watchdog, the Commission for Social Care Inspection, into experiences of finding a care home finds that fees for the same care in a single home can vary dramatically, sometimes from £650 to £1,500 a week.

The wide variation can disguise an unofficial cross-subsidy, in which people who are paying for their own care - often by selling their home - in effect compensate for lower fees paid by those whose place is funded by their local authority.

Councils negotiate lower rates in return for the high numbers of places bought, but care homes claim these prices do not reflect the real cost of care, prompting them to compensate by charging higher fees from private payers, or "self-funders".

Between a quarter and a third of care home places are wholly privately funded, and the average annual cost of a place is around £30,000.

In areas without enough care services to meet demand, even people whose places should be funded by the council are being asked to pay "top up" fees to cover higher charges, says the report, "A fair contract with older people?". This happens in three quarters of homes in some areas.

Denise Platt, chair of the watchdog, yesterday said the study, based on evidence from inspections and research with more than 1,700 older people and their carers, showed that many do not receive a fair deal. People looking for a care home place were often left unsure about what they would get for their money, she said, while self-funders were "particularly disadvantaged by a lack of information, support and advice at every stage".

Over half of self-funders had not had an assessment of their care needs to which they were entitled, and so had had no chance to discuss care options and were left "scrabbling around for information", often at a highly stressful time.

Lack of transparency in pricing was leading to unfairness, she added. "It's like getting on Ryanair and some people paying £1,000 and some paying £50."

The report is published against a background of concern about the experiences of older people who fund their own care and the number of older people seeking care as the UK's population ages.

A study published in May 2005 by the Office of Fair Trading found that many older people were poorly served by the care home market and needed more information and transparency on pricing.

Today's report found that while 90% of homes are meeting national requirements to provide people with personalised fee information by their moving-in date they often leave this to the last moment - sometimes the day of the move - and do not give a detailed cost breakdown.

A total of 58% of homes visited in a study of 10 councils charged different rates for people funded by their council and those paying for their own care, yet there was no substantial difference in service. Both councils and care providers blamed lack of money for the practice - an issue highlighted in last year's Wanless report into the future of elder care.